NSW faces one big challenge that has hardly rated a mention in the election campaign: population growth.

The population of NSW will increase by about half a million during the next term of parliament – that's roughly equivalent to adding another Newcastle. But neither major party has a detailed policy on how to respond to the projected increase.

Analysis by the Australia Institute shows that strong population growth means real budget spending per person in NSW will decline during the next term of government, no matter who wins Saturday's poll. Despite a torrent of election promises, the institute estimates state budget spending per capita will fall from $9000 this financial year to $8700 per person by 2017-18, after adjusting for inflation.

Dr Richard Denniss, the Executive Director of the Australia Institute, said there had been no acknowledgement of the implications of population growth during the election campaign. And he warned that the big-ticket infrastructure promises won't do much to reduce traffic jams and crowded trains.

"Mike Baird and Luke Foley have both claimed they want to deal with congestion," Dr Denniss said. "But population growth means that, at best, the big infrastructure projects being promised will only slow the rate at which congestion gets worse. They won't reduce congestion."

The projected fall in state spending per person will put more stress on health and education services. An Australia Institute report released today shows the number of hospital beds per capita has already declined since the middle of last decade in urban, rural and remote areas of the state. Transport services are also under strain – the report says travel on NSW trains has grown consistently over the past decade, with 55 million more journeys per year now than in 2004, an increase of 18 per cent.

"Announcements of big new infrastructure spending in Sydney need to be put in the context of the population growth – because if you factor that in, it equates to a cut in services," Dr Denniss said.

He said government budget papers should publish figures on spending per person in major portfolios to provide a more accurate picture of the resources available for services such as health and education.

Population growth has two drivers – by natural increase, when there are more births than deaths, and by net overseas migration, when more people immigrate than emigrate.

Australia has the fastest population growth rates among major developed countries, mainly due to a high rate of migration. The Bureau of Statistics projects that our population, now 23.8 million will grow to around 40 million in 2061, based on current trends.

"Despite our rapid population growth being at historic rates and among the highest in the world, it is all too rarely discussed," said the report, titled Population Growth in Australia.

Dr Denniss said that since the 2000 Olympics the population of Australia had grown 25 per cent.

"In fact, since the Sydney Olympics, Australia's population has grown more than the entire population of Sydney at that time," he said.

Population growth in Australia has been consistently highest in major capital cities. By 2060 Sydney and Melbourne are forecast to have populations greater than the whole of Australia in 1950.

"Overcrowding and under-resourcing has put huge pressure on our cities," Dr Denniss said.